Mortgage firm posts $151m loss

Freddie Mac, the second-largest US mortgage-finance company, posted a $151 million first-quarter loss as tumbling home prices and record foreclosures drove up credit costs. The company will raise $5.5 billion in capital.

The net loss amounted to 66 cents a share. Fannie Mae, Freddie Mac's bigger competitor, last week posted a larger-than-expected $2.19 billion loss for the quarter and raised $6 billion.

Freddie Mac, based in McLean, Virginia, and Fannie Mae agreed to raise capital to overcome losses from loan delinquencies. Those losses and other impairments will likely deepen, according to analysts including Christopher Whalen, a managing director at Institutional Risk Analytics. Chief Executive Officer Richard Syron said in March he won't raise capital at the expense of shareholders.

"People need to accept the fact that the rest of the year for the enterprises and the rest of the mortgage market are going to be really ugly," said Whalen, who helped co-found Torrance, California-based Institutional Risk Analytics.

Fannie Mae and Freddie Mac, both government-sponsored enterprises, own or guarantee almost half of the $12 trillion in US residential mortgages outstanding.

Assets decline

The worst housing market since the Great Depression, caused Freddie Mac's fair value of assets to decline. Fannie Mae's assets dropped to $12.2 billion from $35.8 billion in the period.

"The credit losses for both GSEs will ramp up over the next few quarters and they will have to raise capital again," said Ajay Rajadhyaksha, the head of fixed-income strategy at Barclays Capital.

Freddie Mac has said its credit losses would rise to the equivalent of 12 basis points, or $2.2 billion, in 2008 and 14 basis points, or $2.9 billion, next year, less then some analyst estimates. Fannie Mae last week boosted its estimates for this year to a range of 13 to 17 basis points.

Credit Suisse analyst Moshe Orenbuch in New York expects Freddie Mac's credit losses to rise to 20 basis points this year and 29 basis points in 2009.

Fannie Mae's losses will grow to 21 basis points in 2008 and 24 basis points next year, he said.

The first-quarter net loss is Freddie Mac's fourth in the past six quarters. Freddie Mac reported a net loss of $211 million, or 46 cents a share, in the year-earlier period.

Most of Freddie Mac's record $2.45 billion fourth-quarter loss stemmed from a surge in costs to cover foreclosures and losses on derivatives used to hedge its credit and interest-rate risk.

The company's costs to cover credit losses and other related expenses soared to $3.46 billion in that quarter, while losses on its derivatives portfolio mushroomed to $2.09 billion.

Freddie Mac has plunged about 63 percent in the past year in New York Stock Exchange composite trading. The stock declined 94 cents to $24.96 yesterday. Fannie Mae fell 13 cents to $28.12 and has dropped 55 percent in the past 12 months.

Fannie Mae and Freddie Mac were created by Congress to increase mortgage financing and provide market stability. They make money by holding mortgage assets that yield more than their debt costs and by guaranteeing bonds they create out of loans.

Fannie Mae and Freddie Mac since 1970 have been exempt from registering their stock and debt securities because of their government-chartered status.

Agencies

(China Daily 05/15/2008 page16)